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What Is the Procure-to-Pay Cycle?

"Procure to pay," or P2P, is the full cycle of actions and events that a business engages in when they require goods or services from an outside supplier. This cycle describes the steps that a company must take to procure the items and pay the appropriate remittance to the supplier, less any discounts and adjustments.

Although simple in theory, the modern P2P cycle for enterprise-level businesses is a highly complex undertaking with many moving parts. As businesses grow and operate at a greater scale, P2P and related accounts payable processes must transition from simple paper-based workflows into sprawling efforts that often demand automation and computer aids.

Let's examine the basic steps in a modern P2P cycle, their inefficiencies, and how modern, AI-empowered software solutions can integrate with leading ERP platforms for success and savings.

In this quick guide, we'll explore answers to the following question:


The 5 Major Procure-to-Pay Process Steps

5 Steps of Procure to Pay

In a typical procure-to-pay cycle, there are five stages for a business to reach a completed transaction. In big businesses, various parts of this cycle often occur all day, every day. For multinational companies, the procurement cycle is a source of a significant amount of information and extensive responsibilities.

Here's how it works.

Purchase Requisition

At this stage, the business identifies a need for a part, a finished product, a service, or anything else that it may require from an outside vendor. The department that has the requirement defines the need and sets specifications. The purchasing department then takes these specifications and identifies a vendor, or selects a preferred supplier based on previous orders and experiences.

Purchase Order

With a vendor identified, purchasers must determine the appropriate price and ensure that it aligns with their department's buying power. Negotiations with new vendors can take time unless your business already has an established contract with clear terms. At this stage, the department creates a purchase order (PO) for the required goods, records the PO as a unique record in its books, and transmits the order to the vendor for fulfillment.

Order Confirmation

The vendor receives the purchase order and transmits a confirmation of its receipt, often with an acknowledgment that their stock levels are appropriate for fulfillment. The vendor advises the business of anticipated turnaround times and shipment dates. This vital information is essential for effective supply chain and logistics planning, but capturing it and making it available and useful can be a challenge with limited technology.

Delivery Notification

Next, the purchased goods arrive, and your business must transmit a confirmation of delivery to the vendor. A critical step at this point is checking the shipment against the purchase order to ensure that everything has arrived in good condition. It's vital to note exceptions, such as damaged or missing items, to avoid paying for goods not received. Your business communicates all this information back to the vendor.

Invoice Payment

With the information that you supplied, the vendor applies any necessary deductions and then transmits an invoice to your business. The most critical step of P2P takes place here: the three-way match, which reconciles the original PO, the delivery receipt, and the invoice to ensure that all the information is correct.

Traditionally, it is a time-consuming process. Tracking down errors can cause potentially costly delays. Additional delays often occur when the match is complete but you require authorization for payment. Only once all these elements are in place can your business remit payment, enter the final financial information into the ledgers, and close the transaction.

Procure-to-Pay Solutions

With so many moving parts and so much information to reconcile on an ongoing basis, businesses require advanced solutions for handling processes involving accounts payable and the P2P cycle. These solutions often come in an ERP platform, such as SAP and specific modules within SAP, combined with additional software designed to reduce error rates and decrease friction.

In SAP, these processes are often a "procure to order" workflow.

What Is "Procure to Order"?

Look back to the purchase requisition, purchase order, and order confirmation steps. Within an ERP platform, such as those created by SAP, a business can use a software solution designed to automate this early phase of the buying process. Departments can raise their requests, and the system can list suitable vendors and create a standardized PO with a limited number of human touches.

Such automated systems both reduce the likelihood of errors and increase the availability of information critical for business analytics. By using SAP as a part of your P2P process flow, you can electronically integrate with vendor systems and fully automate a large portion of purchasing. Using the SAP P2P process ensures efficient data capture and allows your business to conduct analytical operations to identify opportunities for savings and improvements.

Let's explore these steps.

What Is the P2P Process in SAP When Using Tungsten AP Essentials Integration?

AP Automation Achievements of Best-In-Class Enterprises

The power and versatility of SAP for managing elements of the P2P cycle are unmatched, but the right tools can extend the platform's basic functionality into the 21st century. Advanced programs built on machine learning and artificial intelligence, such as Tungsten AP Essentials, can transform partially-paper-based workflows into fully digital flows that produce clear and consistent results.

AP Essentials uses cognitive capture technology to intelligently classify documents and extract information, such as PO numbers, item types, quantities, and more. The same software can also quantify information from invoices and, with SAP, streamline the three-way matching process.

With tools such as Tungsten Process Director, businesses can automate procurement, payment, and new supplier onboarding while making it simple to correct errors early—before they can cause problems.

More advanced than the basic P2P cycle, the SAP workflow takes the basic stages and segments them into key moments for data accumulation and communication.

Determination of Requirements

The department originating a purchase request makes a clear determination of its requirements based on upcoming projects, existing inventory, and other factors. ERP data helps these departments make smart assessments to avoid unnecessary requisitions.

Determination of Vendor/Supply Source

Your team must determine where to locate suitable vendors or suppliers for the necessary goods if there are no existing records of suitable suppliers.

Vendor Selection

SAP helps your team to choose from the available vendors defined in your system. With Process Director integration, these steps are immediately available in a familiar system with easy-to-use interfaces.

Purchase Order Processing

The purchasing department creates or issues a purchase order. With Tungsten Automation tools, this process can occur entirely electronically, keeping the PO process paperless. You can also scan hard copy purchase orders into the system. AP Essentials intelligent algorithms automatically classify the document, file it to the appropriate system, and log the information in your ERP.

Purchase Order Monitoring

Monitoring POs involves watching for significant events related to an order, such as changes in quantities, lack of stock from a vendor, or fulfillment information. Effective monitoring and invoice-matching with POs can reduce bottlenecks and ensure that everyone follows the same rules for purchase authorization. An easier approval workflow means more cost-effective work.

Goods Receipt

Upon receipt of the items, you can use AP Essentials and other AP automation tools by Tungsten Automation to capture all the information related to the delivery. Through your procure-to-pay system, you can electronically transmit a receipt notification to the vendor.

Invoice Verification

Once the vendor transmits an invoice to your business, AP Essentials can automatically categorize it and extract the necessary information. With Process Director or your own SAP tools, you enable automatic PO matching. Together, these tools dramatically simplify the matching process. With added speed and a large reduction in human errors, your business can easily capitalize on savings from early payment discounts and avoid headaches such as double payments.

Transforming Procure to Pay with Advanced Software Solutions

Establish your department as a reliable contributor to the company’s success.

By carefully structuring your procurement to payment and PO processes, your business can save money, improve outcomes, and streamline efforts that have traditionally been a key source of bottlenecks and headaches. With effective AP automation, you can easily establish your department as a reliable contributor to the company's success.

To learn more about integrating Tungsten Automation solutions such as AP Essentials and accounts payable automation into an ERP such as SAP, request a quote built for your business today.